The move from active investing to passive has been a hot topic lately. Fund flows show that investors are voting with their feet. The news media has been all over the story. The Wall Street Journal has done a big spread on it; Bloomberg has covered it extensively as well.

Bill Miller, the legendary stock picker at Legg Mason Capital Management who beat the Standard & Poor’s 500 Index for 15 consecutive years, has an intriguing theory about why investors have been abandoning active investments. Although some people see passive investing as a form of active investing, he sees the precise opposite phenomenon:

Active fund managers are often nothing more than high-priced closet indexers.

Barry Ritholtz [1] recently spoke with Miller for a new episode of Masters in Business and exchanged e-mails during the past few days about the subject. Here’s a summary of Mr. Miller’s thoughts and insights:

No. 1. Most active investment management is too expensive
Miller …